Common Mistakes Made By Bankruptcy Filers and Their Attorneys - #6

6. Assuming all of a consumer’s debts are on their credit report.
  

Many consumers have no idea who they owe money to. Debtors and their attorney’s routinely rely on credit reports to provide the information for Schedules D, E & F. A lot of time this is okay but not always. Some medical providers, friends, relatives, ex-spouses, business associates, landlords, and many others don’t always report to the credit bureaus. In a no asset chapter 7 the debt may still be discharged but if one of these unlisted creditors years later suddenly sues on the debt it may be difficult to stop them. Few attorneys will take such a case on a contingency so debtors facing this situation may have to spend thousands of dollars defending themselves.
  
So, it is important for consumers filing bankruptcy to think back to anyone in the past who wasn’t paid or anyone who had a claim, whether the claim had merit or not. And they can't assume if a debt was written-off that they don’t have to worry about it. Writing off a debt is only an accounting entry and doesn’t prevent the creditor from trying to collect the debt. Nor does the statute of limitations make it unnecessary to list an old debt. Statute of limitations statutes are complicated. They can be tolled during bankruptcy or extended by the discovery rule or other statue. It doesn’t cost anything to list another debt, so it's not smart to hold back.

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Common Mistakes Made by Bankruptcy Filers and Their Attorneys - #5

5. Ignoring Creditor Collection Attempts after Filing and Discharge.

There are a number of mistakes that debtors and their bankruptcy attorneys make that often cause  problems after discharge or after their chapter 13 is confirmed. These mistakes often make it difficult to enforce the discharge or the automatic stay and can cause the debtor to suffer a serious financial loss.

It’s human nature to avoid embarrassment and conflict, if at all possible. So, it is not understandable that Debtors would ignore calls and letters from creditors after filing bankruptcy. They know the debt is no longer collectible, so they throw away the collection and letters and ignore the calls that keep on coming after filing and even, sometimes, after a discharge is received. This, however, is a mistake.

Some creditors intentionally ignore a bankruptcy notice hoping that the debtor can still be coerced to pay. Whether it is to buy peace, ease feelings of guilt, or believing it will help improve their credit, debtors will often pay discharged debt even though they have no obligation to do so. The problem with ignoring these illegal contacts after bankruptcy is that the creditors will just continue to harass the debtor with calls, letters, by illegally pulling their credit reports, and they may even report the debt as active and collectible to the credit bureaus.

These acts may prevent a debtor’s credit score from properly rebounding after filing bankruptcy and threaten the fresh start they were expecting. What all debtors should do is keep every letter or email received from creditors, document each phone call carefully and report these contacts to their attorneys.

There are various laws that protect bankruptcy filers from these types of illegal contacts, but they can only be successfully prosecuted if there is evidence to show the court and jury. The actual letters, telephone records and documentation of damages are all needed to prevail in bankruptcy court, in state courts, or the federal district courts.  But nothing will happen unless an attorney who handles these type claims is retained and he has the proof necessary to prevail.

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Common Mistakes Made By Debtors and Their Attorneys

There are a number of mistakes that debtors and their bankruptcy attorneys make that often cause problems after discharge or after their chapter 13 is confirmed. These mistakes often make it difficult to enforce the discharge or the automatic stay and can cause the debtor to suffer a serious financial loss..

 

2. Failing to monitor returned chapter 13 payments after confirmation.

 

This most often occurs with property taxes. A debtor files bankruptcy and includes the home loan and delinquent property taxes. The plan is confirmed and everything seems fine. But a year or two down the road the mortgage company notices the property taxes are delinquent and elects to pay them. When the chapter 13 trustee sends a payment to the taxing authority it is returned because the mortgage company has already paid it. The following year the debtor gets a notice that his house payment has increased dramatically because there is an escrow shortage. The Chapter 13 Trustee usually sends the attorney a letter advising him that the payment was returned, but these letters are often ignored. If two or three years have gone by it’s a very difficult problem to resolve because the payments that should have gone to pay taxes are diverted to unsecured creditors. If this situation is handled immediately upon receipt of the trustee’s notice it is a problem that can be solved quickly without any permanent damage.

 

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Common Mistakes by Debtors and Their Attorneys

 

There are a number of mistakes that debtors and their bankruptcy attorneys make that cause serious  problems after their discharge or after their chapter 13 is confirmed. These mistakes often make it difficult to enforce the discharge injunction or the automatic stay and can cause the debtor to suffer a serious financial loss..

1. Failing to Send Notice to Late Added Creditors



One of the mistakes attorney's often make is failing to send the bankruptcy notice to creditors who are added after the initial filing. This can make it difficult to enforce the discharge injunction. We find this all the time. A new creditor is added and since the bankruptcy notice has already gone out the creditor doesn’t get notice of the bankruptcy. Although the creditor may get other notices or a copy of the discharge, the creditor has been deprived of its opportunity to attend the 341 meeting or file a proof of claim. Although the debt will probably still be discharged it will be hard to successfully prosecute a contempt action if the creditor continues to try to collect the debt. Invariably, the creditor will claim they didn’t get notice of the bankruptcy and we won’t be able to prove otherwise. The solution would be for the attorney to send the bankruptcy notice to late added creditors by certified mail, return receipt requested, so there will be  proof they got proper notice of the bankruptcy filing.

 

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Mortgage Servicing Rights: A Cash-Cow for Servicers But A Nightmare for Consumers.

 



A recent trend in the mortgage lending industry is the sale by banks and mortgage companies of the lucrative servicing rights on the loans in their portfolios. Special servicers like Nationstar and Ocwen are taking over the collection of mortgage payments, processing of modifications and the foreclosure and collection of delinquent accounts. This is probably a positive development  as  the banks and mortgage companies have been doing a horrible job at it.

 

Unfortunately, the assignment of servicing rights on a mortgage loan can cause the consumer much grief. I can't count the number of times that a client has complained that they were current on their mortgage until the servicing rights were transferred and they suddenly had to make payments to another company. Invariably in the transition a payment would get lost or delayed and then the collection letters would start, late charges applied and suddenly a perfectly good loan was in default.

 

A Chapter 13 bankruptcy is often the only way to cure a loan that is in default. Those who do not qualify for Chapter 13 must file Chapter 7 and reaffirm the debt or surrender their homes and get a discharge of the mortgage debt. These filers who surrender their homes, however, should carefully monitor their credit after their discharge as the original lender, the original servicer and the successor servicers quite often will continue to report the account to the credit bureaus. And successor servicers will often act like the loan is still collectable. With all these assignments it is not unusual to find  the original lender or servicer and the successor servicer reporting to the credit bureaus on the same loan and pulling credit reports when there is no longer any account relationship. This inaccurate reporting can significantly delay the recovery of a filer's credit score.

 

So, if you get a notice in the mail that the servicing rights on your home mortgage are being assigned to a new company be wary, monitor your credit reports carefully and if you find something that doesn't look right, seek professional help..

 

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Don't Mess With Texas Consumers!

Tell It Like It Is

 

 

 

 

 

 

 

 

 

 

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Creditors Can’t Seem To Stop Illegally Accessing Credit Reports

It is a perplexing phenomenon but some creditors can’t stop illegally pulling consumers’ credit reports even after they are caught doing it. On numerous occasions we have sued a creditor for illegally accessing our client’s credit reports after their debt was discharged in bankruptcy. Once the debt is discharged they have no legitimate reason to be pulling them, yet sometimes before the ink on the settlement agreement is dry, they start pulling the credit reports again. In a few cases we have had to sue them three times before they finally stop. And it’s not because the penalties are small. Damages can run $500 to $1500 per illegal pull, plus actual damages, costs and attorney’s fees. If anybody has an explanation, let me know.

 

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Crime Scene - Creditors Often Intentionally Misreport the Bankruptcy Discharge

 

A common problem for consumers who have surrendered their homes or rental property in bankruptcy is that their lenders or mortgage servicers often ignore the bankruptcy discharge and attempt to collect the mortgage deficiency. This illegal collection activity may take the form of statements, collection letters, notices of forced insurance placement, escrow reconciliations, modification offers, etc. The correspondence will say that it is for informational purposes only and to disregard it if the consumer has been through bankruptcy, but the statements usually demand the payment of money and provide an envelope to remit payment. Of course, these lenders and services hope the consumer will write a check and send it in even though they have no obligation to do so.

  

A worse problem is when the lender or mortgage servicer fails to update a consumer's credit report to show that the debt has been discharged in bankruptcy or report the debt as collectible when it is not. Although it is a crime in Texas to knowingly furnish false information to a credit bureau, the statute is rarely enforced by prosecutors. This results in the consumer not only suffering from the effects of the bankruptcy on his credit but also a delinquent mortgage. When a potential lender pulls the consumer's credit report it will appear that the mortgage has been reaffirmed, is past due, that the full balance is still owed. This could result in a consumer being denied credit in the future or, if credit is granted, having to pay a higher interest rate, and certainly will preclude getting new mortgage financing.

  

For some reason mortgage lenders and servicers have a difficult time shutting down their collection efforts even after they are told by the consumer or their attorneys to cease and desist. If this happens litigation may be necessary to enforce a consumer's rights.

 

Consumers who experience continued collection activity by lenders should keep all correspondence and emails and keep a log of all phone calls as these may be needed as evidence should litigation be necessary. It is also advisable to periodically review their credit reports to be sure the mortgage debt is being correctly reported.

 

It is expensive for lenders to ignore the bankruptcy discharge, the Telephone Consumer Protection Act (TCPA) or the dictates of the Fair Credit Reporting Act (FCRA). I'm sure you have seen the huge settlements these lenders and servicers have been forced to pay by government regulators over the past year and doesn't include the millions in civil damages they must have paid to settle private suits, yet the abuses continue. The only conclusion that can be drawn from this is that these lenders and servicers must be making a lot of money by violating the law.

 

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How Creditors Collect Discharged Debt

We all know that when a debt is discharged in bankruptcy that’s the end of it, right? Think again. Creditors have a sack full of tricks to get consumers to pay debts that they don’t have any legal obligation to pay. In fact, there is an entire industry of debt buyers out there that most people don’t even know about. I’m not talking about the collection agencies, but companies and trusts that do nothing but buy and sell debt—some of it discharged. Obviously if they are buying the debt they intend to collect it. Below are a few of the ways it’s done.

1) Closing on a house or car. When your bankruptcy is over you will eventually need to finance a new car or buy a home. When you go to apply for a loan your loan officer will pull your credit and may tell you that you don’t qualify—unless you can pull up your credit score a few points. They suggest you contact some of your creditors that are negatively reporting on your credit report and settle the debt. You protest that the debt has been discharged but they just shrug. So, you take their advice, contact the creditors and pay off some of your discharged debt. What you were not told was the negative reporting should not have been on your credit report in the first place.

2) Several months after you bankruptcy discharge comes through you start receiving telephone calls or letters from a company you don’t recognize. You think perhaps you didn’t list them on your bankruptcy and are still liable for the debt or the collector says this debt isn’t discharged by the bankruptcy. It gets ugly from there on and you end up settling with them. What they don’t tell you is that they bought the debt from a creditor who was listed in the bankruptcy or that, in a no asset case which is the norm, an unlisted debt is still usually discharged.

3) After your bankruptcy is over you continue to pay an auto loan or home mortgage, although you don’t formally reaffirm that debt. Later on you get behind on the payments and the car is repossessed or the house foreclosed. Months later a collection agency comes along and tries to collect the deficiency. They tell you or you assume that you still owe the debt since you continued to pay on it after the bankruptcy is over. What they don’t tell you is that the debt is still discharged and usually not collectible. The creditors sole remedy, in most cases, is to take back their collateral and that’s it.

4) After your bankruptcy is filed some of your creditors will quit updating your credit report so they don’t have to report that their debt has been discharged. They hope you will voluntarily pay them later to improve your credit score. What you should know is that this trick called “parking an account” and you can dispute the account and make them update it without paying them a nickel.

 

These are just a few of the ways creditors will try to collect a debt that legally isn't collectible. They are very resourceful and will do just about anything if they think they can get away with it. That's why we decided to practice in this area. We believe everyone who filed bankruptcy to get a fresh start should get what was promised them.

 

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Creditors Sometimes Assign Discharged Debt to Collection Agencies

Recently I worked on a petition against a Colorado collection agency that called our client six times afrer receiving the account from the orignal creditor who was listed in their chapter 13 bankruptcy.  This is a blatant violation of the automatic stay and/or discharge injjunction. In this instance the case was later converted to chapter 7 so it was a discharge violation. Then, to make matters worse, the collection agency assigns the case to an attorney for collection, yet another violation.

 

How does something like this happen? Is it intentional or simply negligence? The excuse we almost always get from collection agencies is that they had no knowledge of the bankruptcy because the creditor who sold or assigned the account didn't tell them about it. Unfortunately for the collection agencies, ignorance of the bankruptcy is no excuse. When they try to collect a debt that is no longer collectable they violate the Texas Unfair Debt Collection Act and if they report it to a credit bureau they can be guilty of liable as well.. It is irrelevant whether they knew about the bankruptcy or not.

 

What is fairly clear is that when the original creditor gets the conversion and discharge notices it will not pass on those notices to the current holder of the debt. I think this is a matter of logistics. The original creditors simply have too many accounts that have been assigned for collection or sold and have no mechanism in place to forward notices from the bankruptcy court.

 

So, the consumer loses and has to suffer through the mental anguish that always results from taking nasty phone calls and/or receiving collection letters from attorneys long after the debt is discharged.  Lucky there is a remedy to the consumer.

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Millions of Americans Will Seek A Fresh Start, But Will They Get It?

With lingering unemployment and the inevitable casualties of our credit driven economy, millions of Americans will be forced into bankruptcy over the next few years. They will be looking for a discharge of their credit card debts, medical bills, and mortgage deficiencies and the fresh start the bankruptcy code promises.

 

Unfortunately, even if they successfully complete their bankruptcy filing and their debts have been discharged doesn't mean the fight against predatory lenders is over. Many creditors intentionally misreport people's credit after filing bankruptcy and some will even continue trying to collect the discharged debt. You would think there would be someone in the government making sure creditors obeyed the bankruptcy discharge and the Fair Credit Reporting Act, but that's not generally the case. That task is largely left to the debtors themselves, which means most often nothing is done and the predatory creditor is allowed to continue to ruin the lives of innocent Americans.

 

We have all witnessed lender greed and corporate excess during the current economic meltdown and it's time we put an end to them. Fortunately there are a myriad of laws available to stop this type of abuse by the credit industry. The first is a contempt action in the bankruptcy court, the second are federal actions under Fair Credit Reporting Act (FCRA) and/or the Fair Debt Collection Practices Act (FDCPA), and the third are state court actions for defamation, unreasonable collection or violation of local fair collection laws.

 

Unfortunately, these laws are not utilized often enough to stop this type of abuse. Two of the reasons for this are ignorance on the part of consumers and residual guilt from the bankruptcy filing. They don't know what their rights are after bankruptcy and because they feel a little guilty over not paying their debts, they are not inclined to take action against the lender whose debt has just been discharged. What they don't know is that their creditors haven't necessarily given up getting paid and sometimes won't quit until forced to do so.

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Fair Credit Reporting Act Protects Creditors As Much As Consumers

Although you would think the Fair Credit Reporting Act was written to protect consumers, it also has provisions that protect creditors. One specific requirement that insulates creditors, at least under federal law, from liability exposure, is the requirement that consumers dispute erroneous items on their credit reports and give the offending creditor 30 days to confirm or correct the reporting. This may seem fair at first glance, but what if the erroneous reporting was intentional or resulted from gross negligence, which is often the case. Why should creditors be insulated from liability when they cause a consumer to lose an opportunity to buy a house or a car? Why should consumers have to endure the humiliation of a credit denial without recourse when a creditor makes an obvious mistake? Why should creditors get a free pass when they injure a consumer? It doesn’t make sense. There is no doubt the credit industry lobbied long and hard for this provision in the FCRA. Luckily there are state laws that don’t recognize this requirement to dispute erroneous credit before action can be taken against the offending creditor.
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Reporting to the Credit Bureaus Is Debt Collection Activity

The courts have held that credit reporting is debt collection activity and this makes sense as the credit bureaus were established for one simply reason, creditors wanted to make sure that the money then lent would be repaid. The credit bureaus have two functions. First to make sure the money their members lend goes to people who are likely to pay it back. Secondly, if the debt isn’t repaid there is an effective way to force the debtor to pay it back. Since having good credit is critical today for home ownership, to rent an apartment, to get a car or finance large consumer items, most people will do just about anything to keep their credit clean. The reality is depriving someone of good credit is a more effective collection technique that dunning letters, harassing phone calls, or even threat of litigation. This is particularly true in Texas where the generous exempt property laws make collecting from the average citizen a hopeless endeavor. So, when creditor report on their customers after they file bankruptcy they must comply with the Fair Credit Reporting Act and it is imperative for consumers who file bankruptcy to make sure their creditors follow the dictates of the FCRA so their credit will come back as quickly as possible

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Don't Let Finances Destroy Your Marriage.

One of the most common refrains I hear from my bankruptcy clients is: "Why did I wait so long to file?" The problem is most people are optimistic and believe they will be able to turn things around. They hate to admit failure and don’t want to be saddled with the stigma of bankruptcy. So, they suffer unbearable stress and pain, year after year, struggling to make ends meet until their situation becomes unbearable. Few marriages can survive this trauma and as a result families are split apart.

 

The fact is, in our credit driven economy, bankruptcy is inevitable for a lot of consumers. A lost job, illness, business failure, or weakness for all the alluring products and services that are dangled out in front of us each day, can leave a consumer deeply in debt with no way out. In this situation, absent a rich uncle or a lottery win, these consumers will eventually have to face bankruptcy. I’m not saying consumers should take filing bankruptcy lightly, but if there is no realistic way to avoid it then sooner is better than later.

 

This was brought home to me early on in my career when I got a call from a widow of a man who had committed suicide because of his business failure. We put the business in chapter 11 and the man's brother turned it around in six months. The man had taken his life needlessly. So, it's always better to face the inevitable and file bankruptcy before the marriage is destroyed and family relationships irrevocably injured.

 

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